DOT Seeking Proposals to Jump-Start New Air Service

Tom Smith On Mar 12, 2007
Source: Online Editor in Chief

For the second consecutive year, the Small Community Air Service Development Program is alive despite efforts by the Bush administration to kill this grant program. And for the second consecutive year, the program will only award $10 million in grants instead of $20 million as it had in earlier years.

The Department of Transportation (DOT) is now soliciting community proposals for the grants that are designed to improve air service to those small air hubs or those airports without any commercial service. The application deadline is April 27. The grants are traditionally awarded in late summer. (See the list of last year’s award winners.)(pdf)

Now in its sixth year, the program has changed with the agency applying stricter criteria in making the grant awards.

First the basics: No more than 40 grants will be awarded; no more than four projects can be selected from the same state and no current grant winner can apply. (See the rules as well as other DOT information on the program.)

One of the founding goals of the program was to reduce high airfares. In at least two cases, grants were awarded to cities that underwrote new low-fare carriers in direct competition with legacy airlines. No more.

Both United and Delta have objected to these grants. “The DOT doesn’t want to fight with the airlines,” says Michael Boyd, of The Boyd Group. His consulting firm has assisted communities in applying for the grants and then implementing their air service development programs. In the last grant round, the firm's clients won about one-third of the grants.

The scope of the program has changed so that Boyd now predicts that less than 60 communities will apply.

Last year there were 75 grant applications filed from 37 states collectively seeking $32 million. Only four of the 75 applications were from communities that had never previously applied to the program. In the class of 2006, there were 18 applications that failed to meet the basic selection criteria -- 16 of these because they were currently participating in an earlier round of funding or have found another source of funds.

“We have warned our clients that what worked in the past won’t work in the future,” Boyd explains.

“So going forward you have to be very careful that you submit something that is definable, that is measurable, and in front of a court of law, well almost, you can defend it as improving air service. Whatever you do, don’t ask to do something different.”

While Congress has rescued the program in the last two budget rounds, Boyd says Congress would like to end the program. “Congress has given DOT a mandate: You will fund EAS. Today, DOT is under pressure to use the money basically for EAS.”

Congress has cut the program by $10 million in the last two budgets to provide more funds for the Essential Air Service program.

No fan of EAS, Boyd calls it “a mess,” with the government funding empty planes flying between EAS city-pairs.

The Small Community program has settled into a pattern. The grant money is used either for marketing or airline subsidies. A number of early grants were for surveys, but fewer in recent years. DOT has “come to the conclusion the studies are just a waste of money spent trying to illuminate the obvious,” Boyd notes.

Any community preparing a grant application needs to come to table with cash to match the federal dollars. Unlike some federal programs that mandate specific local contribution ratios, this one does not. The rules don’t provide any guidelines.

However, Boyd cautions that communities should not promise a local match via ticket banks or travel pledges. DOT has found that these promises to buy a specified number of tickets on a new carrier fail to fully materialize once an airline starts flying.

“Use of these words will send applications to the round file,” Boyd notes.

Few “outside-of-the-box” or “Hail Mary” ideas have been funded. And, those that have been funded have not yielded new air service, Boyd says.

“Some of the things they have granted they know will never come to fruition.”

DOT will entertain the submission of consortiums. But this year, the rules state that the proposal needs to be a single, workable plan, not a “collection of individual community requests.” In another change, a community cannot submit a separate grant application if it is a member of a consortium.

“Most of the consortium applications have never gone anywhere,” Boyd says. “The ones that have been granted for North Carolina, California and New Mexico are a waste of money. Studying whether you can support intrastate air service in California is very much like studying whether Newton was right or wrong. It doesn’t work.”

Last year several airports applied for grants to start their own ground handling operations as a way to lure new carriers. “It was the cause celeb. It didn’t work. They didn’t make any headway.”

In the past, several airports won grants to upgrade their air service from turboprop to regional jet. Most of these awards were made before Northwest and Delta Air Lines filed bankruptcy and then subsequently scaled back the routes for their regional carriers. The 50-seat regional jet continues to be out of favor in the industry.

"I think DOT will shy away from these because some of them have not worked out," Boyd adds.

The grant applications need to be flexible. The DOT cautions that secondary goals should be included in the application in case the primary goal cannot be reached.

Boyd stresses that the DOT will “not allow any wiggle room.”

In the case of Durango, Colo., the community won a grant for air service to eastern cities. Delta was recruited to provide the service. The carrier provided service to its Salt Lake City hub with connections to the East. However, because Delta had to fly north to reach Salt Lake City, DOT disallowed the grant. “The community was defrauded on a technicality,” he says.

Delta has maintained the service because it is profitable without a subsidy.